Despite several initiatives such as the National Export Strategy and the gospel of value addition and diversification, Malawi continues to struggle to make a difference on the commodities market.
The United Nations Conference on Trade and Development (Unctad), in its Commodities and Development Report 2023, has called for the redoubling of efforts towards economic diversification in countries such as Malawi where 60 percent or more of merchandise export revenues derive from primary commodities.
Dependence on primary commodities makes such countries vulnerable to economic and political shocks that have hit global commodity markets in the aftermath of the Covid-19 pandemic and the Russia-Ukraine conflict that has disrupted global supply chains.
For Malawi, according to Unctad, commodities make up 95 percent of exports in value terms.
Where is Malawi getting it wrong? Why are we stuck with dependence on exports of a few unprocessed commodities despite having in place initiatives to stimulate exports such as the National Export Strategy (2021-26) that seeks to consolidate, expand and diversify exports?
Export growth is critical to attainment of Malawi 2063, the country’s long-term development strategy. The strategy envisages diversification of export products within the agricultural sector and towards other sectors, including mining and tourism as having potential to make a difference.
For Malawi, over the years, policy inconsistencies have contributed to the stunted growth of diversification and exports. Where policies tend to favour traders more than manufacturers, surely, you cannot maximise the gains as traders will bring in “cheap” products that will give unfair competition and frustrate manufacturers’ efforts towards import substitution. Import restrictions should be carefully reviewed and implemented.
Investments in increased power generation and road network under the impending Millennium Challenge Corporation compact as well as review of some laws offer a glimmer of hope towards incentivising diversification and exports.
It is a process that demands patience, but at the same time there is need to roll up our sleeves and get down to work to make a difference in the diversification drive to boost foreign exchange earnings and the economy at large.
The index of industrial production, derived from the production volumes data for industries in the manufacturing, electricity and water supply, shows that on average, industrial production levels in Malawi in 2021 went down by about 11 percentage points below the 2020 levels, according to Ministry of Finance and Economic Affairs data.
On the other hand, output in the manufacturing industry for 2021 was 18.4 percent lower than in 2020.
To achieve meaningful recovery, Malawi needs to stimulate the business environment to improve its competitiveness and attract foreign direct investment. Until we start manufacturing on a bigger scale and for exports to generate foreign exchange, the country will continue to be at the mercy of institutions such as the International Monetary Fund (IMF).
Trade and investment, not aid, is what this country needs to develop. It is my prayer that this time around, the investment forum will go beyond presentation of “a compendium of bankable projects” and attract real investors instead.
Being an agro-based economy, agricultural commodities dominate the country’s export basket with tobacco, sugar, tea, coffee, macadamia nuts and pigeon peas, among others, accounting for the largest exports for the economy.
Nothing wrong really, but adding value and increasing production of high-value crops such as macadamia is what will maximise the gains.
With private sector players such as Old Mutual Investment Group, through its alternative investments platform, and NBM Development Bank financing production of macadamia and its value chain, there seem to be light at the end of the tunnel.